What about the rest of ‘tax fairness?’
By: David M. Walker
April 16, 2012 09:24 PM EST

April is one of those months with no federal holidays. To top it off, on Tuesday, the federal government gives us everyone’s least favorite day of the year: Tax Day.

I fill out my own federal income tax return. Which is quite an undertaking for any American — even for me, a CPA and former comptroller general. The truth is, the day that I prepare our taxes is not a fun day in the Walker household.

Of course, no one likes taxes — as necessary as they are to fund government services — and politicians know the tax system is a hot-button issue. During this election year, candidates from both parties are stressing the need to reform our federal Tax Code. Yet politicians have been talking about this need for years, without making real progress.

A big part of the problem is that too often, the public debate about reforming our federal tax system focuses on one issue: Are certain groups paying their “fair share”? Granted, there is a valid debate about whether the wealthiest should pay more. As there is about whether enough Americans are contributing, given the significant percentage who pay no income tax.

However, there are two other important fairness questions that get lost in the debate.

First, we need to address fairness for individuals with the same amount of total income. Right now, two people of roughly the same income can wind up paying significantly different amounts in federal taxes.

For example, say my neighbor and I have roughly the same income. But his employer pays for a generous health insurance plan while I am self-insured; he owns a home while I rent, and he makes his income primarily through investments while I earn wages. When it’s time to pay Uncle Sam, our effective federal tax rates would be very different. I’d wind up paying a good bit more. Is that “fair”?

The disparity is because of tax expenditures — the various deductions, credits, exclusions and exemptions in our enormous federal Tax Code, and the different tax rates applicable to certain types of income — such as dividends and capital gains.

Many of these tax expenditures are used to promote policies that would otherwise be done through direct government spending. In reality, they represent backdoor spending through the Tax Code — and it costs the federal government more than $1 trillion a year.

These tax expenditures also mean that the true size of the federal government’s economic impact is far larger than advertised. Certainly there are worthwhile tax expenditures, like a charitable giving deduction, but many others can and should be eliminated. Or at least targeted in a way that makes common sense.

Second, we also must consider tax fairness across generations. Failure to pay for the government we have today forces others to pay for it tomorrow. Our federal government now has more than $65 trillion in liabilities and unfunded promises, which grow by roughly $2 trillion to $3 trillion a year, absent reform.

If we fail to act, future generations will have to pay the price and bear the burden. It’s morally reprehensible to pass the buck along to those who cannot vote and have not even been born yet.

As we all commemorate or, more likely, try to forget Tax Day, let’s remember to hold current and prospective elective officials accountable to address tax fairness — in all its forms and at all government levels. Only then will we move beyond sound bites and political posturing to meaningful tax reform.

That would certainly be worth celebrating.

David M. Walker is a former comptroller general and the chief executive officer of the Comeback America Initiative.